Innovation by yurtgc548


									L12: Business Development
   Outline to Future Business

 Business  Models
 Predictive Models

 Building a Responsive
 Future Patterns of Innovation

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1. Business Models

   EC10 Innovation &
        Working Definition
"a business model is the method of doing
business by which a company can sustain itself -
- that is, generate revenue.
The business model spells-out how a company
makes money by specifying where it is
positioned in the value chain."

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               Business Models
" Somewhere out there is a bullet with your company's
name on it. Somewhere out there is a competitor, unborn
and unknown, that will render your business model
obsolete. Bill Gates knows that. When he says that
Microsoft is always two years away from failure, he's not
just blowing smoke at Janet Reno. He knows that
competition today is not between products, it's
between business models. He knows that irrelevancy
is a bigger risk than inefficiency. And what's true for
Microsoft is true for just about every other company” Gary
Hamel and Jeff Sampler in Fortune Magazine December 7, 1998.

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Business model invention, development, and adaptation, is a core
competence for entrepreneurial business. In a global knowledge-based
economy where competition is internet-time paced, a facility and
understanding of emerging business models can become a great asset, and
the lack thereof, a serious liability.
Business modelling is about understanding how existing
relationships, structures, and processes define the “game” as it is
played in a particular industry or market, how it is changing, and
what new possibilities are emerging.
The process of business modelling is the process of understanding how
existing market structures, technologies, and business processes are
played in a particular industry or market, how these elements are changing,
and what new possibilities are emerging.
A Business Model maps the linkages between the evolution of the market,
new technologies, the development of organisational strategy, the
management of R&D and innovation, and the roles they play in the creation
of new breakthrough businesses.

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     Business Model Issues
What drives the value chain? e.g. evolution of
markets, customer needs and expectations?
What are the key elements of a business model
innovation system, and how do they interact with
one another?
How are strategy, operations, engineering, and
R&D and innovation linked into a system that
enables (or prevents) new business models
being brought to market?
How should current management practices and
current innovation practices be changed?
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What changes are needed in the business processes of
strategy formation, operations design, and R&D
management to make it possible for new business
models to emerge effectively?
What are the repeatable processes and methods?
Does a combination of enabling technologies with new
business models create breakthroughs?
What are the key structural factors and relationships that
lead to success?
Is it possible to identify one or more companies that has
succeeded and/or failed to innovate adequately along
these dimensions, and has seen its business suffer as a

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 The Eclectic Virgin Business
His goal was never to be the biggest. Branson likes being a
disruptor - taking on industries that charge too much (music) or hold
consumers hostage (cellular) or treat them badly and bore them to
tears (airlines). His goal was never to be the most profitable.
Although two of his companies - Virgin Express and the clothing and
cosmetics company Victory - are publicly traded, he generally
prefers to stay private. (Branson took Virgin Atlantic public in 1986,
then private two years later after its market fell by half.) He has little
interest most of the time, in delivering nice, steady earnings stream.
As a public company, “you can’t suddenly have profits of $400
million one year and minus $300 million the next." he says. But
that's exactly what I to do: invest profits from one venture in the next,
which, by the way greatly reduces his tax bill. His offshore trusts
allow him to avoid paying capital gains tax on asset sales as long as
he reinvests the proceeds.

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So Virgin Group operates like an eclectic venture-capital firm.
Branson has mostly majority stakes in its 224 companies, each of
which has its own CEO and board of directors. Each board includes
at least one member from Branson's seven-man advisory council, a
team of bankers, strategists, and accountants who are more or less
in constant touch. Each company also has its own set of outside
investors and/or joint-venture partners (Singapore Airlines owns
about half of Virgin Atlantic; Sprint owns about half of the U.S.
cellular business). Some of these companies will go public
eventually, in part because his other investors may demand it. That
could spell trouble down the road, given Branson's penchant for
doing things his way. But he is enough of an opportunist to covet the
cash some IPOs would bring.

Fortune Magazine “The Man who has Everything”, 6 October 2003

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     Efficient Management
           The Resource Audit
How productive are resources used?
How flexible are our resources?
How balanced are our resources?
What is the nature of our political situation?
How successful is our strategic "fit"?
What is the nature and extent of our "strategic
What is the extent of any "resource slack" in the
Which are our strengths, weaknesses and distinctive
Where and how can we add value to our organisation
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         Resource Classification
Four Types of Resources (Porter)
 –   Inbound logistics are the activities concerned with receiving, storing, and distributing the
     inputs to the organising system.
 –   Operations convert inputs into the final product/services of the organisation.
 –   Outbound logistics are concerned with the collection, storage and distribution of these
     products/services to the customer.
 –   Sales activities attract customer purchase situation and built core values.
These are linked into business support systems
 –   Purchasing is the process adopted whereby each primary activity obtains its own resources
     and includes outsourcing and supply chain management;
 –   ICt (Information Communications Technology) is concerned with "know how" and efficiency
     improvements of the way in which each business activity performs its functions and the
     improvement of each activity's own system outputs;
 –   human resource management recruits, trains, develops and rewards people
     working in primary and support activities;
 –   management systems, including finance, plan and control activities throughout the
Additional (marketing systems include:
 –   Marketing Information systems that gather intelligence
 –   Customer Contact Management to acquire new customers and maintain loyalty
 –   Fulfilment to include outsourcing, channel management and returns

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2. Predictive Models
 “Models       describe rather than predict”
 Storey, 1994

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    Level1: A Clear enough Future
   Decision-makers face Level 1 uncertainty when
    the range of possible outcomes is narrow enough
    that this uncertainty does not matter for the
    decision at hand. This does not imply that the
    future is perfectly predictable, but rather that the
    future is predictable enough to identify a
    dominant strategy choice that is best across the
    range of potential outcomes. As you might guess,
    decision-makers in well-established markets that
    are not prone to external shocks or internal
    upheaval are the most likely to face Level 1
       Courtney, H, 2003, Decision-Driven Scenarios, Strategy & Leadership, Vol 31

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  Level 2: Alternate Futures

– Decision-makers face Level 2 uncertainty when
  they can define a limited set of possible future
  outcomes, one of which will occur, and when
  the best strategy to follow depends on which
  outcome ultimately occurs.
– Organizations that face Level 2 uncertainty can
  define a mutually exclusive, collectively
  exhaustive (MECE) set of possible outcomes.
– One, and only one, of these outcomes will
  actually occur.
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  Level 3: Range of Futures
– Level 3 uncertainty is like Level 2 uncertainty: one can
  identify the range of possible future outcomes, but no
  obvious point forecast emerges.
– In both cases, this range is wide enough to matter for
  the decision at hand, but there is a very important
  difference: strategists facing Level 3 uncertainty can
  only bound the range of future outcomes - they cannot
  identify a limited MECE set of outcomes, one of which
  will occur.
– E.g. might be able to conclude that the five-year market
  penetration rate of a new consumer electronics product
  will fall somewhere between 5 percent and 40 percent,
  but they will not be able to conclude that the rate will be
  either 5 percent, 20 percent, 30 percent, or 40 percent.
  Any other rate between 5 percent and 40 percent is also
  a possibility in this case.

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          Level 4: True Ambiguity
   Future outcomes for Level 4 uncertainties are both
    unknown and unknowable. Analysis cannot even identify
    the range of possible future outcomes with certainty, or the
    most likely scenarios within that range.
   Level 4 situations are rare, and they tend to degrade over
    time to lower levels of uncertainty. They are most likely to
    occur in markets during and immediately after major
    technological, economic or social discontinuities, as well as
    in markets that are just beginning to form. For example, a
    manager attempting to formulate United Airlines' security
    strategy on 12 September 2001 faced Level 4 uncertainty.
    In the immediate aftermath of the horrific terrorist attacks
    that occurred on 11 September, even the most prescient
    security experts could not confidently bound the range of
    future terrorist activity.
       Courtney, H, 2003, Decision-Driven Scenarios, Strategy & Leadership, Vol 31

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3. Responsive Knowledge-
   Based Organisations
 “If, in the wake of globalisation, financial and
  manufacturing techniques become ever
  more capable of imitation, then their
  competitive advantage is correspondingly
  diminished . . . in this sort of world, the
  ability to learn faster than the competition
  may be the only sustainable advantage.”
 Pettigrew, A. and Whipp, R. (1991), Managing Change for Competitive
  Success, Oxford, Blackwell

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       Knowledge & Creativity
 The creation of the knowledge driven
  economy is not some far distant dream. It is
  all around us. The creativity driving it affects
  every stage of the manufacturing process.
  Product design. Innovation. Marketing and
  after sales service. (Mandelson, P,

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 The increasing importance of the knowledge
  driven economy is an international trend which
  affects economies at all levels of development.   The
  World Bank (1998) World Development Report
 "For countries in the vanguard of the world
  economy, the balance between knowledge and
  resources has shifted so far towards the former
  that knowledge has become perhaps the most
  important factor determining the standard of
  living...... Today's most technologically advanced
  economies are truly knowledge-based."
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   Knowledge Driven Economy
 “A knowledge driven economy is one in
  which the generation and the exploitation of
  knowledge has come to play the
  predominant part in the creation of wealth. It
  is not simply about pushing back the
  frontiers of knowledge; it is also about the
  more effective use and exploitation of all
  types of knowledge in all manner of
  economic activity. (DTI, 1998)
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Knowledge Management Drivers
 Information and Communications Technology (ICT)
 Increased speed of scientific and technological
  – acceleration in the growth of the stock of codified scientific
    and technological knowledge
 Global competition
  – Reduced communications
  – Trade & capital liberalisation
  – Reduced transactions costs
 Changing demand                             DTI, 1998
  – Rising income
  – Environmental Pressures

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 Impact on Technology Ventures
 Capabilities
   – Ability to adapt and to embrace change encompassing the
     exploitation of science and technology, enterprise and innovation,
     capital markets, people and skills
 collaboration,
   – both within firms in the way they organise themselves and their
     employees, and between firms in the way they interact in networks
     and in clusters
 competition
   – increased competitive pressures from more open markets and the
     growth in foreign direct investment are interacting with the forces
     driving innovation and increased consumer choice.

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        DTI Policy Perspectives
 “We need to improve our capacity to create and exploit
  scientific knowledge and technology successfully.
 Securing this improvement, together with the need for
  greater dynamism in the knowledge driven economy,
  requires improved enterprise and innovation.
 Finance for enterprise depends in turn on well functioning
  capital markets.
 Firms also need access to skilled workers and the
  successful organisations will be those who make the best
  use of their people and skills.”

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4. Future Patterns
of Innovation

  "blockbuster new products are harder
   and harder to come by, and big
   companies can do much better if they
   focus on making lots of small things
   better. Even in relatively zippy
   businesses like pharmaceuticals,
   genuinely new products are fewer and
   further between. Economist (2004)
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Knowledge Creation

  “useful knowledge cannot be really said
       to be created unless it is part of a
         broader process of knowledge
  diffusion/distribution. Knowledge creation
   and diffusion should thus be understood
     as part of the same process” (OECD,

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Future Patterns
    Real Time Responsiveness
    User-Friendliness
    Aging Boomers/Generation X
    Mass Customisation
    Lifestyle
    Unbundled Service
    Value Differentiation
    High Service
    Techno-edge                                 Tucker 2004
    Quality Perfection

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